Franchisee tenure is an important reflection of franchise system health and franchisee satisfaction.
If franchisee tenure is short, particularly compared with similar businesses, this is clearly important to know. Short tenure is challenging for a franchise system because:
- Overall franchise system growth is constrained (as well as the benefits associated with economies of scale), as new franchisees are needed as replacements rather than fuelling greenfield development
- Valuable franchisor time and energy needs investing into managing the resale and onboarding process – rather than optimising existing unit performance and potential innovation
- Franchisee and systemwide knowledge and skill is limited as there is less experience within the franchise system
- Unit sales can be impacted as customers often appreciate long-standing franchise business owner relationships, and
- It is disconcerting for existing franchisees to see frequent franchisee ownership changes.
Average franchisee tenure is therefore an important KPI for franchisors to understand. And long franchisee tenure can help drive a large and very productive and valuable franchising company.
By way of an example (that we discuss in our Managing a Franchise System training programme), you can consider the growth and size of a franchise system with different levels of tenure (i.e., 3, 5, 7 and 9 years) – while controlling for new franchise recruitment (at a consistent five franchisees a year).
As demonstrated the franchise system could top out at 15 units or 45 units, depending on tenure.
If you are a franchisor, you should know your average franchisee tenure and track this over time. You should also set average franchisee tenure targets and identify actions to improve tenure (if that is an objective).
- Do you track and set targets for franchisee tenure?
- What areas are you working on (or could you work on) to improve franchisee tenure?
About the Franchising Best Practice 500 Series
This is part of a series of franchising best practices. Franchize Consultants is sharing and publishing these best practices weekly for the betterment of franchising. We know that better knowledge and execution of franchising best practices leads to bigger and more valuable franchisor and franchisee businesses.
We have assembled the first 40 best practices into The Best Practice Handbook, which is available for purchase.